the World Gold Council just published a report discussing the next three decades for gold – Gold 2048. Based on the opinions of several industry experts, the document discusses where key trends may lead the precious commodity and the industry:

The expanding middle class in China and India, combined with broader economic growth, will have a significant impact on gold demand.

Use of gold across energy, healthcare and technology is changing rapidly. Gold’s position as a material of choice is expected to continue and evolve over the coming decades.

Mobile apps for gold investment, which allow individuals to buy, sell, invest and gift gold will develop rapidly in India and China.

Environmental, social and governance issues will play an increasing role in re-shaping mining production methods.

The gold mining industry will have to grapple with the challenge of producing similar levels of gold over the next 30 years to match the volume it has historically delivered.

The best way to avoid getting wet in tomorrow’s economy is to listen to the weatherman, reading experts’ opinions to form your own. The report is available at the World Gold Council’s website.

What happened, what may happen

For those interested in the yellow metal, the World Gold Council recently released two documents on the 2017 gold market events and on the outlook for 2018. We all now how forecasts work (I have just read and quote “if you have to forecast, forecast a lot“). Even so, the more you read and know, the better (provided you have a critical knowledgeable mind). The documents are available for download at WGC’s website or from here:

Cryptocurrencies are no substitute for gold. In a summary of their report, WGC says”Bitcoin’s parabolic price rise was the big story of 2017 – putting the spotlight on the cryptocurrency market. While gold’s performance was a solid 13%, it was a fraction of the 13-fold increase of bitcoin by the end of the year.Some commentators went as far as to claim cryptocurrencies could replace gold. Cryptocurrencies may become an established part of the financial system. But, in our view, gold is very different from cryptocurrencies, as gold:

is less volatile

has a more liquid market

trades in an established regulatory framework

has a well understood role in an investment portfolio

has little overlap with cryptocurrencies on many sources of demand and supply.

These characteristics underpin gold’s role as a mainstream financial asset that will likely continue to resonate in today’s digital world.“

Diamonds as an investment is no longer news; it’s been around since the oil crises of the seventies. There has been some evolution recently, related to the blockchain technology and crypto coins:

De Beers, has announced that “it is progressing development of the first blockchain technology initiative to span the diamond value chain and provide a single, tamper-proof and permanent digital record for every diamond registered on the platform.” Read more here, at IDEX.

The Israel Diamond Exchange (IDE) unveiled a new diamond-backed digital coin at IDWI (international Diamond Week in Israel). “The Israel Diamond Exchange and startup CARATS.IO have unveiled a new diamond-based crypto currency called CDC (Carats.io Diamond Currency), which they created together. The new coin was unveiled yesterday (Monday) at the International Diamond Week in Israel (IDWI – February 5 – 7, 2018). The trade in the crypto currency will be based on a new index, presented yesterday for the first time, which will reflect the daily trends in the diamond trade at the IDE. The index will be updated daily on big LED screens, which will be set at the Trading Hall. The index will reflect diamond prices set according to 14 parameters for comparing diamond prices”. To know more, just read here, at IDE’s website.
“According to Founder and CEO Avishai Shoushan, CARATS.IO’s extensive ecosystem of products will elevate the entire diamond industry. CARATS.IO is creating two separate cryptocurrencies, each backed by diamonds purchased on the Israel Diamond Exchange. One coin, called CUT (Carat Utility Token), will be used specifically in B2B transactions between eligible diamond traders. This currency will enable safe peer-to-peer transactions, altogether eliminating the need for financial intermediaries. The second currency, called CARAT, is meant for the wider market of financial institutions and digital currency investors. Both currencies will be backed by diamonds, with a market cap coverage of 25 percent, significantly reducing their speculative level of investment.“, in previous news.

The last two decades have been a carrousel of emotions in the mining industry:

Oil and gold prices had steadily been growing since 2001. Oil spiked to maximum historical values in 2008 (and then crashed, to climb again for 3 consecutive years, plateau for 4 years, until mid 2014, crashing again, reaching nominal values of 2005, and recovering marginally since then).

Gold has had a more regular pattern, growing since to 2001 until 2011, maintaining a high plateau until the end of 2012, crashing until mid 2013, becoming relatively stable since then.

Polished diamonds have shown a much less volatile behaviour, with some ups in 2008 and 2011 (mimicking the markets’ general mood) but rapidly stabilising into a nominal stability (a slow real price decline).

Rough diamonds prices rose roughly 50% in nominal terms (as measured by the Zimnisky Rough Index) since 2007, a more subdued increase in real terms. The price increased in the 2009 – 2011 period, after which it stabilised until early 2015, after which it slowly declined until today.

Why are diamond prices less volatile than other mineral commodities’?
Why do rough and polished prices behave differently?
New deposits discovery and production capacity expansion seem increasingly difficult; why don’t diamond prices increase significantly in real terms?
Are there two different markets in diamonds?
What is the impact of new recovery technologies (XRT) in diamond markets?

Will discuss that in the next post. What is your opinion?

The oil and gold indices were calculated by just dividing the monthly gold average nominal price in US dollars by their price (nominal US dollars) in January 1980.

The Antwerp Diamond Index is a set of indices used to measure the price variation of five types of polished diamonds. The index is based on prices in US $ and gives the average price evolution on the Antwerp market of diamonds ranging in colour from exceptional white + to white and in clarity from LC to VS2:

1 ct diamonds (1973 =100)

1/2 ct diamonds (1973 =100)

A = Small Brilliant (1980 =100)

B = Melée (1980 =100)

C = 1/4 ct diamonds (1980 =100)

The Antwerp Diamond Index is maintained by the Diamond Office of The Antwerp World Diamond Centre (AWDC). To know more about AWDC and the Diamond Office , just visit their website: https://www.awdc.be/en/diamond-office.

The Zimnisky Global Rough Diamond Price Index was created to consolidate rough diamond price information and publish current respective price changes of rough diamonds on a weekly basis in the form of an index. The intent of the Index is to track, analyze, and disseminate current aggregate rough diamond price fluctuations for use by a range of diamond industry participants.

The proprietary index methodology primarily incorporates price data from rough diamond transactions in the primary market, e.g. sales via long-term contract, tender, and auction by commercial miners. The Index also includes a minor sensitivity to polished diamond prices, given that miners utilize the polished market as a factor when determining contract pricing of rough. In addition, the Index includes a minor sensitivity to stand-alone diamond mining equities, as the relative liquidity that equities provide can imply the current profitability and revenue generation ability of diamond miners, which is directly influenced by the current rough diamond market.

Given the nature of natural diamond production, the variance in quality of stones produced, or the product mix, can impact global rough diamond prices on an average price-per-carat basis. The Index strives to represent as accurately as possible current price changes reflected in the average rough diamond transaction valued on a per carat basis in U.S. dollars. The Index value does not directly represent the price of a 1-carat rough diamond, but the percentage change in the average value of a rough diamond transaction relative to the initial Index value, at a given point in time.

The Index is based on an initial value of 100 using data starting on April 4, 2004. The Index is updated on a weekly basis, typically on Saturday. Retroactive revisions to index data are made on a quarterly basis typically after public miners release official quarterly sales figures.
(adapted from http://www.paulzimnisky.com)

To know more about the Zimnisky Global Rough Diamond Price Index, or obtain Paul Zimnisky’s insight on the diamond markets, check http://www.paulzimnisky.com.

For those that missed it, World Gold Council released a report a few days ago about the gold trends in 2016. World Gold Council report highlights:

2016 was the second best year for ETFs on record. Global demand for gold-backed ETFs and similar products was 531.9t – the highest since 2009. Q4 saw outflows.

The gold price ended the year up 8%. Having risen 25% by the end of September, gold relinquished some of its gains in Q4 following Trump’s conciliatory acceptance speech and the FOMC’s interest rate rise.

2016 saw a 7-year low for jewellery demand.bRising prices for much of the year, regulatory and fiscal hurdles in India and China’s softening economy were key reasons for weakness in the sector.

India’s shock demonetisation policy brought the market to a virtual standstill. An initial rush for gold following the policy announcement came to a swift halt in the ensuing cash crunch.

According to REUTERS (WORLD NEWS | Tue Nov 22, 2016 | 1:47pm EST), The European Union agreed a deal on Tuesday to stem the flow of gold and other metals used to fund armed conflicts or produced in conditions that breach human rights.

EU importers of tin, tungsten, tantalum, gold and their ores will from 2021 have to carry out checks on their suppliers in legislation that will also apply to smelters and refiners.

Human rights campaigners said the agreement was a half-hearted first step, with imports of finished products that may contain the minerals not included and an end result that exempted a large number of companies.

Portugal has a long tradition in the mining industry (in our European heartland and, during our long and rich History, in other territories in South America, Africa, Asia). Romans mined (gold and other metals, natural stone) in what is now the Portuguese territory and before them the Celts and Phoenicians.

The Portuguese mining industry is now built around three main pillars:

The natural stone sector (with hundreds of active marble, granite and limestone quarries and high quality manufacturing centers – we are the largest per capita natural stone exporter: market research here).

The metals (especially Au and W – in the country’s north and center – and Cu-Zn in VMS Iberian Pyrite Belt – in the south).

The USGS is an invaluable source of knowledge and information on economic geology (and on most Geology branches, in fact). I have just come across one of their publications; in this case, on VMS deposits – an important source of precious and basic metals (in the world and in Portugal – in our case, for over two millennia). Enjoy: Volcanogenic Massive Sulfide Occurrence Model.

The World Gold Council just published their review of gold’s performance during 2015, examining the factors that may influence gold in 2016.

According to the World Gold Council’s report, the effect that US rates have had on the gold price is overdone and may take a back seat in 2016. Amid expensive stock valuations and high market risks, gold’s role as a portfolio diversifier and tail risk hedge is particularly relevant.

Companies have a shared responsibility for the materials that they produce. Demonstrating value focuses on the two complementary sides of the responsible sourcing debate – sustainable procurement and responsible supply.

A client (a small to medium sized operation) recently asked my help to certify the origin of its production in a neighbouring country of DRC. If it’s diamonds we talking about, there are already standard procedures in place (it’s relatively easy); if it’s one of the 3TG (tin,tantalum, tungsten or gold), then it’s a complex maze, especially if you are outside the Great Lakes countries but in their shadow (neighbouring countries).

In this situation, there is no one locally to whom you may ask for advice (no financing for institutions to have representations in the countries outside the main focus of attention; yet local producers have to “exercise supply chain due diligence“, whatever this is (don’t bother explaining the concept, I understand it in theory; how does a small to medium operation puts it into practice?).

I use ICMM (as well as CIM and PDAC’s) guidelines and publications in the projects I design; I did it in the past and am doing it now in an exploration project in Angola. I must confess that I only check for new ICMM updates on a need to use basis; this time I downloaded the new report on responsible sourcing from today’s e-mail. Perhaps I will get (and my client) some insight from this document.